Study: Business Bank Could Help SMEs Succeed

Success in Challenging Times: Key lessons for UK SMEsResearch indicates that a business bank supplying capital to high-growth small and medium-sized businesses (SMEs) could give the UK economy a boost.

The research, carried out by the University of Surrey and commissioned by chartered accountants Kingston Smith LLP, took the responses of over 1,000 business leaders across the country.

Including thirteen focus groups and twenty in-depth interviews, the survey is one of the largest studies of small business strategic management in the UK with the researchers winning an award for their work.

The results come less than a month after the Business Secretary, Vince Cable, announced that a billion pounds of taxpayers’ money would be set aside for a new British Business Bank, further details of which are expected in Chancellor George Osborne’s Autumn Statement.

The study’s director, Professor David Gray, said of the findings;

“We found that SMEs mostly borrow from family or friends or re-invest retained profits, but these sources are often inadequate for the growth needs of businesses.”

Traditional lending, Professor Gray said, had slipped down the rankings…

“Our research shows that banks come a poor third in terms of finance sources – which is disappointing given that the UK is considered to be a market economy. SMEs need ‘patient’ capital, finance that is there for the longer term. This is the only way to stimulate and sustain high-growth businesses.”

SMEs, 58% of those polled, tend to use just one source of finance to kick start their business whilst 42% of the small businesses questioned relied on just one source of finance to sustain their venture.

Professor Mark Saunders commented:

“It is interesting to note that, although more sources of finance are used by SMEs to sustain their business than at start up, the proportion of SMEs using bank finance remains steady throughout, at just under 30%.”

Another key area of the research included what does success really mean to small and medium-sized businesses? The entrepreneurs repsonded iverwhlemingly that providing better customer satisfaction was a prime reason (89%) with both customer retention (customer loyalty) and growing business profits in close second, each with 86% of business leaders indicating this was the definition of running a successful SME.

Sir Michael Snyder, Senior Partner of Kingston Smith, who commissioned the research, commented:

“This research validates our experience, which shows that what SMEs really need is long-term funding to close the equity gap. We hope the Government will take this opportunity to throw high-growth potential SMEs the lifeline they need by providing them with a guaranteed level of core working capital finance with which to develop and flourish.”

“This would also reduce the risk profile of lending to SMEs which would, in turn, incentivise banks to lend and unlock new sources of SME financing.”

Sir Michael continued:

“These findings highlight the importance to SMEs of matching different types of expenditure with the appropriate sources of finance, and demonstrate how vital it is to success that businesses are able to diversify their sources of funding.”

“Pairing the right sort of funds to each asset and expense is essential to proper cash flow management – while it also spreads risk, so that businesses are not forced to put all their eggs in one basket.”

Alongside business finance and concerns over cashflwo, other interesting findings of the research included the facts that small and medium-sized businesses find Search Engine Optimisation (SEO) and social media as key drivers to success on the web and that innovation & learning are vital for gaining a competitive edge.

Additionally it was found that SMEs are looking for external advice to drive their success that they are very flexible when it comes to adpating to market conditions. Outsourcing is one area where small firms are willing to gain an advantage and exporting has become a high point on many SMEs’ agenda.

A summary of the report Success in Challenging Times: Key lessons for UK SMEs is available from with the full version available on request.

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